SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: (Date of earliest event reported): January 31, 1997
DI INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
TEXAS 1-8226 74-2144774
(STATE OF INCORPORATION) (COMMISSION FILE NUMBER) (IRS EMPLOYER IDENTIFICATION NO.)
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450 GEARS ROAD, SUITE 625
HOUSTON, TEXAS 77077
(ADDRESS OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
713/874-0202
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
(NOT APPLICABLE)
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On January 31, 1997, DI Industries, Inc., a Texas corporation (the
"Company"), completed the acquisition of the operating assets of Flournoy
Drilling Company ("Flournoy") and elected Mr. Lucien Flournoy, the founder of
Flournoy, to the Company's Board of Directors. This acquisition was pursuant to
a definitive asset purchase agreement based on arms length negotiations among
the parties. The assets were acquired for approximately 12.43 million shares of
The Company's common stock, par value $0.10 per share (the "Common Stock"), and
cash on hand of approximately $800,000 which was utilized to repay certain of
Flournoy's debt. The assets acquired include 13 land drilling rigs, 17 rig
hauling trucks, a yard and office facility in Alice, Texas and various other
equipment and drill pipe. The Company hired the majority of Flournoy's operating
personnel. Flournoy utilized and the Company intends to utilize these assets in
contract oil and gas land drilling services.
The Company agreed to issue additional shares of Common Stock to
Flournoy's shareholders (the "Additional Flournoy Shares") if, and to the extent
that on January 31, 1998, the aggregate market value of one-half of the shares
received by the Flournoy shareholders, plus the gross proceeds from any sales of
Common Stock by the Flournoy shareholders prior to January 31, 1998 is, in
total, less than $12.43 million. If such a shortfall in market value occurs, the
number of Additional Flournoy Shares to be issued will be determined by dividing
the amount of the shortfall by the average closing price of the Common Stock in
each of the ten trading days prior to the first anniversary of the closing.
During such ten trading day period, each of the Flournoy Shareholders will agree
not to sell any shares received by them at closing. The Company will retain the
option of paying any shortfall amount in cash rather than shares of Common
Stock. The Company granted immediate shelf registration rights for the resale of
the Flournoy shares.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
Flournoy's statement of net assets acquired and liabilities assumed as
of December 31, 1996, and statement of revenues and direct operating expenses
for the year ended December 31, 1996, are required by this Item 7. These
financial statements will be filed on or before April 16, 1997.
PRO FORMA FINANCIAL INFORMATION
The Company's unaudited pro forma consolidated balance sheet as of
December 31, 1996, and its unaudited pro forma consolidated statement of
operations for the year ended December 31, 1996, are required by this Item 7.
These pro forma financial statements will be filed on or before April 16, 1997.
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EXHIBITS
The following exhibit is filed with the Form 8-K in accordance with
the provisions of Item 601 of Regulation S-K promulgated under the Securities
Act of 1933, as amended:
2.1 Asset Purchase Agreement dated December 31, 1996, between Flournoy
Drilling Company and Drillers, Inc.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 31, 1997
DI INDUSTRIES, INC.
By:
/s/T. SCOTT O'KEEFE
Senior Vice President and Chief Financial Officer
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EXHIBITS
The following exhibit is filed with the Form 8-K in accordance with the
provisions of Item 601 of Regulation S-K promulgated under the Securities Act of
1933, as amended:
2.1 Asset Purchase Agreement dated December 31, 1996, between Flournoy
Drilling Company and Drillers, Inc.
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ASSET PURCHASE AGREEMENT
BY AND BETWEEN
FLOURNOY DRILLING COMPANY
AND
DRILLERS, INC.
Dated as of December 31, 1996
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TABLE OF CONTENTS
1. PURCHASE AND SALE OF ASSETS.......................................... 1
1.1 TRANSFER OF ASSETS............................................. 1
1.2 EXCLUDED ASSETS................................................ 3
1.3 INSTRUMENTS OF CONVEYANCE AND TRANSFER......................... 3
1.4 FURTHER ASSURANCES............................................. 5
1.5 LIABILITIES.................................................... 5
1.6 EXPENSES: TITLE INSURANCE, CONSENTS AND TAXES................. 5
1.7 ALLOCATION OF DRILLING CONTRACT REVENUE........................ 6
2. CLOSING; PURCHASE PRICE.............................................. 6
2.1 CLOSING DATE................................................... 6
2.2 PURCHASE PRICE AND PAYMENT..................................... 6
2.3 PURCHASE PRICE ALLOCATION...................................... 6
2.4 PRORATIONS..................................................... 6
2.5 TAX FREE REORGANIZATION........................................ 6
3. REPRESENTATIONS AND WARRANTIES....................................... 7
3.1 REPRESENTATIONS AND WARRANTIES OF THE ......................... 7
(a) DUE ORGANIZATION; GOOD STANDING AND POWER................ 7
(b) VALIDITY OF AGREEMENT; APPROVALS; NO CONFLICT WITH
INSTRUMENTS ............................................ 7
(c) FINANCIAL INFORMATION AND ABSENCE OF CERTAIN CHANGES..... 8
(d) TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES... 8
(e) CONTRACTS................................................ 8
(f) PERMITS AND OTHER DATA................................... 9
(g) LEGAL PROCEEDINGS........................................ 9
(h) INTELLECTUAL PROPERTY.................................... 9
(i) CONDUCT OF BUSINESS IN COMPLIANCE WITH REGULATORY AND
CONTRACTUAL REQUIREMENTS ............................... 9
(j) CERTAIN FEES............................................. 10
(k) ENVIRONMENTAL, HEALTH AND SAFETY COMPLIANCE.............. 10
(l) TAXES.................................................... 11
(m) RIGHTS OF THIRD PARTIES.................................. 11
(n) ADDITIONAL INFORMATION................................... 11
(o) LABOR MATTERS............................................ 12
(p) EMPLOYEE BENEFIT PLANS AND ARRANGEMENTS.................. 12
(q) GUARANTEES............................................... 13
(r) TRANSACTIONS WITH AFFILIATES............................. 13
(s) PLAN OF DISTRIBUTION..................................... 13
3.2 REPRESENTATIONS AND WARRANTIES OF BUYER........................ 13
(a) DUE ORGANIZATION; GOOD STANDING AND POWER................ 13
(b) AUTHORIZATION AND VALIDITY OF AGREEMENT.................. 13
(c) NO APPROVALS OR NOTICES REQUIRED; NO CONFLICT
WITH INSTRUMENTS ....................................... 14
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(d) CERTAIN FEES............................................. 14
(e) SEC FILINGS.............................................. 14
3.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES..................... 15
3.4 SCOPE OF REPRESENTATIONS OF THE COMPANY........................ 15
4. COVENANTS; ACTIONS PRIOR TO CLOSING.................................. 15
4.1 ACCESS TO INFORMATION.......................................... 15
4.2 CONDUCT OF THE BUSINESS........................................ 16
4.3 SURVEY AND TITLE INSURANCE COMMITMENT.......................... 17
4.4 FURTHER ACTIONS................................................ 18
4.5 NOTIFICATION................................................... 18
4.6 NO INCONSISTENT ACTION......................................... 18
4.7 ACQUISITION PROPOSALS.......................................... 18
4.8 HARTSCOTTRODINO ACT............................................ 19
4.9 PUBLIC ANNOUNCEMENTS........................................... 19
4.10 ASSET LOSS..................................................... 19
4.11 PERFORMANCE BONDS.............................................. 20
4.12 ENVIRONMENTAL MATTERS.......................................... 20
5. CONDITIONS PRECEDENT................................................. 20
5.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF ALL PARTIES............. 20
(a) NO GOVERNMENTAL ACTION................................... 20
(b) TERMINATION UNDER HARTSCOTTRODINO ACT.................... 21
(c) SHAREHOLDER AGREEMENTS................................... 21
5.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER................... 21
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES............... 21
(b) PERFORMANCE OF AGREEMENTS................................ 21
(d) ACTIONS AND PROCEEDINGS.................................. 21
(e) LICENSES AND CONSENTS.................................... 21
(f) OPINION OF COUNSEL OF THE COMPANY........................ 22
(g) MATERIAL ADVERSE CHANGE.................................. 22
(h) RIG AUDIT................................................ 22
(i) PAYOFF LETTERS........................................... 22
5.3 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY......... 22
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES............... 22
(b) PERFORMANCE OF AGREEMENTS................................ 22
(c) ACTIONS AND PROCEEDINGS.................................. 22
(d) OPINION OF COUNSEL TO BUYER.............................. 22
(e) PAYOFF LETTERS........................................... 22
6. EMPLOYEES............................................................ 23
6.1 EMPLOYMENT..................................................... 23
6.2 NO BUYER LIABILITY............................................. 23
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7. TERMINATION AND COMPANY'S RIGHT TO UPDATE............................ 23
7.1 GENERAL........................................................ 23
7.2 CHANGES FROM DATE OF AGREEMENT TO DATE OF CLOSING.............. 24
7.3 NO LIABILITIES IN EVENT OF TERMINATION......................... 24
8. COVENANTS; ACTION SUBSEQUENT TO CLOSING.............................. 24
8.1 POST CLOSING CONSENT........................................... 24
8.2 ACCESS TO BOOKS AND RECORDS.................................... 25
8.3 MAIL........................................................... 25
8.4 SHAREHOLDER AGREEMENTS......................................... 25
8.5 COMPANY'S COVENANT NOT TO COMPETE.............................. 25
8.6 REGISTRATION STATEMENT......................................... 26
9. INDEMNIFICATION...................................................... 27
9.1 INDEMNIFICATION BY THE COMPANY................................. 27
9.2 INDEMNIFICATION BY BUYER....................................... 27
9.3 MONETARY LIMIT ON INDEMNIFICATION LIABILITY.................... 27
9.4 INDEMNIFICATION PROCEDURES..................................... 27
10. MISCELLANEOUS........................................................ 29
10.1 PAYMENT OF CERTAIN FEES AND EXPENSES........................... 29
10.2 NOTICES........................................................ 29
10.3 ENTIRE AGREEMENT............................................... 30
10.4 BINDING EFFECT; BENEFIT........................................ 30
10.5 ASSIGNABILITY.................................................. 30
10.6 AMENDMENT; WAIVER.............................................. 30
10.7 LIMITATION ON INTEREST......................................... 30
10.8 SECTION HEADINGS; INDEX........................................ 31
10.9 SEVERABILITY................................................... 31
10.10 COUNTERPARTS................................................... 31
10.11 APPLICABLE LAW................................................. 31
10.12 NO THIRD PARTY BENEFICIARIES................................... 31
11. DEFINITIONS.......................................................... 31
11.1 DEFINED TERMS.................................................. 31
11.2 CERTAIN ADDITIONAL DEFINED TERMS............................... 33
11.3 REFERENCES..................................................... 34
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LIST OF SCHEDULES AND EXHIBITS TO AGREEMENT
SCHEDULES
Schedule 1.1(a) - Real Estate
Schedule 1.1(b) - Rigs
Schedule 1.1(c) - Vehicles
Schedule 1.1(d) - Inventory
Schedule 1.1(e) - Drill String
Schedule 1.1(h) - Contracts
Schedule 1.1(i) - Permits
Schedule 1.1(j) - Intellectual Property
Schedule 1.2(g) - Certain Excluded Assets
Schedule 1.5(c) - Certain Assumed Liabilities
Schedule 2.3 - Purchase Price Allocation
Schedule 3.1(b) - Consents and Approvals
Schedule 3.1(c) - Certain Liabilities
Schedule 3.1(d) - Liens and Encumbrances
Schedule 3.1(e) - Contracts
Schedule 3.1(f) - Permits and Other Data
Schedule 3.1(g) - Legal Proceedings
Schedule 3.1(h) - Intellectual Property
Schedule 3.1(i) - Conduct of Business in Compliance with Regulatory
and Contractual Requirements
Schedule 3.1(k) - Environmental Compliance
Schedule 3.1(n) - Additional Information
Schedule 3.1(p) - Employee Benefit Plans
Schedule 3.1(q) - Guaranty
Schedule 3.1(r) - Transactions with Affiliates
Exhibit A - Special Warranty Deed
Exhibit B - General Conveyance
Exhibit C - Form of Assignment
Exhibit D - Opinion of Counsel to Company
Exhibit E - Opinion of Counsel to Buyer
Exhibit F - Shareholder Agreement
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") is made and entered into
as of December 31, 1996 by and between Flournoy Drilling Company, a Texas
corporation (the "Company") and Drillers, Inc., a Texas corporation ("Buyer").
R E C I T A L S:
1. The Company is engaged in the business (the "Business") of onshore oil
and gas well drilling; and
2. The Company desires to sell to Buyer substantially all of the Company's
assets, which are more fully described in Section 1.1 hereof, and Buyer desires
to acquire such assets in consideration of the payment by Buyer of the purchase
price provided for herein, all upon the terms and subject to the conditions
hereinafter set forth.
AGREEMENT
In consideration of the premises and of the respective representations,
warranties, covenants, agreements and conditions of the parties contained
herein, it is hereby agreed as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1 TRANSFER OF ASSETS. On the terms and subject to the conditions set
forth in this Agreement, on the Closing Date, the Company shall sell, convey,
assign, transfer and deliver to Buyer, and Buyer shall purchase and acquire from
the Company (except as provided in Section 1.2 hereof) all of the following
assets, rights and properties:
(a) certain tracts of land located in Alice, Texas as more
particularly described in SCHEDULE 1.1(a) hereto, together with all
buildings, structures, fixtures, improvements, easements, and other rights
and assets pertaining thereto (such property being hereinafter
collectively referred to as the "Real Estate");
(b) The thirteen drilling rigs, together with all the drilling
machinery and equipment listed on SCHEDULE 1.1(b) hereto (collectively,
the "Rigs");
(c) All trucks, trailers and other vehicles listed on SCHEDULE
1.1(c) hereto, together with all binders, chains, winches, rigging and
other equipment associated therewith (collectively, the "Vehicles");
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(d) All the spare parts and inventory of the Company on the Rigs and
on the Real Estate and listed on SCHEDULE 1.1(d) hereto (collectively, the
"Inventory");
(e) All the drill pipe and drill collars set forth on SCHEDULE
1.1(e) hereto (the "Drill String");
(f) All warranties and guarantees, if any, express or implied,
existing for the benefit of the Company in connection with the Rigs,
Vehicles, Inventory and Drill String to the extent assignable;
(g) All personnel, safety, maintenance, environmental, and other
policy manuals for onshore operations, catalogs, research material,
technical information, software and technology relative to the above and
all specifications, designs and drawings owned by and in possession of the
Company and used in the conduct of the Business;
(h) The rights of the Company affecting the Business under all
contracts, agreements and arrangements listed on SCHEDULE 1.1(h) hereto
(collectively, the "Contracts");
(i) The rights of the Company under all Permits relating to the
development, use, maintenance or occupation of the Real Estate or the
conduct of the Business listed on SCHEDULE 1.1(i) hereto, to the extent
that such Permits are transferable;
(j) All Intellectual Property of the Company relating to the
Business, and any goodwill associated therewith, including all rights
associated with all personnel, safety, maintenance, environmental and
other policy manuals conveyed to Buyer, and the assets identified on
SCHEDULE 1.1(j) hereto, but excluding however the title of the Company in
and to the names "Flournoy", "Flournoy Drilling", "Flournoy Production
Company" and any derivatives thereof (except that Buyer shall, as
expeditiously as possible but in any event no later than 30 days after the
Closing, remove all signage relating to the name or trademark of the
Company from any of the Assets);
(k) All personnel files and other materials relating to employees of
the Company who are hired by Buyer including those contemplated by Section
6 hereof;
(l) All records of compliance and non-compliance with the laws,
regulations, ordinances and orders applicable to the Real Estate or the
Business;
(m) All blueprints, specifications, designs and drawings associated
solely and exclusively with the Real Estate, Rigs, Vehicles, Inventory and
Drill String, to the extent owned by the Company and in its possession and
control;
(n) All current operating budgets for the Business;
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(o) All personal property of the Company located at the Company's
facilities in Alice, Texas;
(p) The Company's mailing address and telephone numbers in Alice,
Texas; and
(q) Prepayments for drilling work to be performed under drilling
contracts executed prior to Closing but to be performed after Closing
(reduced, however, by the cost of any surface casing owned by the Company
at the Closing Date and accounted for by the Company as "Prepaid Rig
Expenses").
The assets described in this Section 1.1 as being sold, conveyed, assigned,
transferred and delivered to Buyer hereunder (and not being specifically
excluded under Section 1.2 hereto) are sometimes hereinafter referred to
collectively as the "Assets".
1.2 EXCLUDED ASSETS. It is expressly understood and agreed that the Assets
shall not include the following:
(a) Cash and cash equivalents or similar type investments, such as
certificates of deposit, Treasury bills and other marketable securities;
(b) All receivables of the Company as of the Closing Date, all
rights to payment under any assigned Contracts arising out of work
performed by the Company prior to the Closing Date, and all deposits and
prepaid expenses (other than "Prepaid Rig Expenses" used in computing net
prepayments conveyed to Buyer in accordance with Section 1.1(q) above),
including refunds of premiums for all insurance policies and bonds
covering periods after the Closing Date;
(c) Claims for refunds of taxes and other governmental charges to
the extent such refunds relate to periods prior to the Closing Date;
(d) All rights, claims or causes of action of the Company arising or
relative to periods prior to the Closing;
(e) The assets of any employee benefit plan maintained by the
Company or any of its Affiliates;
(f) The original corporate minute books, stock books, financial
records, tax returns and corporate policies and procedures manuals of the
Company; and
(g) The assets specifically described on SCHEDULE 1.2(g) hereto.
1.3 INSTRUMENTS OF CONVEYANCE AND TRANSFER. On the Closing Date, the
Company shall deliver or cause to be delivered to Buyer the following:
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(a) Duly executed and acknowledged special warranty deeds in the
form attached hereto as EXHIBIT A and owner's policies of title insurance
issued by Border Abstract & Title Co., Inc. or Guaranty Title Co. Inc. (as
selected by the Company) (the "Title Company") in the name of Buyer
insuring the fee estate in the Real Estate. The owner's policies of title
insurance shall be for an amount which is consistent with the allocation
provided for in Section 2.3 hereto and shall be issued subject only to the
Permitted Encumbrances; provided, however, that (i) there shall be no
exception pertaining to discrepancies or conflicts, (ii) such policy shall
have "none of record" endorsed thereon with respect to restrictions
(except for restrictions that are Permitted Encumbrances), (iii) there
shall be no exception for rights of parties in possession, (iv) any
exception for taxes shall be limited to the current tax period in which
the Closing occurs, marked "not yet due and payable" and (v) such other
changes as agreed upon by the Title Company; provided, that all additional
premiums associated with the foregoing items (i) and (iii) shall be borne
by Buyer. The Company shall deliver such deeds to the Title Company in a
timely manner so as to permit the filing and recording thereof on the
Closing Date and otherwise contemporaneously with the issuance of such
title insurance policy;
(b) A general conveyance in the form attached hereto as EXHIBIT B
transferring to Buyer good and marketable title to all of the tangible
personal property included in the Assets, subject only to Permitted
Encumbrances;
(c) An assignment or sublease to Buyer of the Company's right, title
and interest in each of the Contracts referred to in Section 1.1(h)
hereof, in the form attached hereto as EXHIBIT C (provided, however, that
the failure to secure any necessary third party consents shall not
constitute a breach under this Section 1.3(c));
(d) All appropriate documents for the assignment as of the Closing
Date of the Company's rights under the licenses, permits and franchises
referred to in Section 1.1(i) hereof and of all registrations, permits,
licenses, equipment or motor vehicle leasing agreements, motor vehicle and
rolling stock titles, rights under sales and/or purchase orders and rights
under all other Contracts constituting a part of the Assets;
(e) Originals of all of the Contracts, commitments, books, records,
files and other data (except any such items that are directly related to
Retained Liabilities) that (i) are included in the Assets or (ii) relate
to or affect the Assets as of the time of Closing and are reasonably
necessary for the continued conduct of the Business; and
(f) Such other instruments of transfer and assignment in respect of
the Assets as Buyer shall reasonably require and as shall be consistent
with the terms and provisions of this Agreement.
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Prior to the Closing Date, the Company will use reasonable efforts to take such
actions as may be requisite or appropriate so that no later than the close of
business on the Closing Date, Buyer will be placed in actual possession and
control of all of the Assets.
1.4 FURTHER ASSURANCES. From time to time after the Closing, the Company
will execute and deliver, or cause to be executed and delivered, without further
consideration, such other instruments of conveyance, assignment, transfer and
delivery and will take such other actions as Buyer may reasonably request in
order to transfer, convey, assign and deliver to Buyer, and to place Buyer in
possession and control of any of the Assets or to enable Buyer to exercise and
enjoy all rights and benefits of the Company with respect thereto.
1.5 LIABILITIES.
(a) All liabilities of the Company existing on or arising prior to
the Closing Date, known or unknown, fixed or contingent, are retained by
the Company, except as specifically set forth in Section 1.5(c) below (the
"Retained Liabilities").
(b) Notwithstanding anything herein to the contrary, the Company
shall not assume any liability or obligation arising out of any breach by
the Buyer, including Buyer's failure to perform or negligent or improper
performance, of any assigned Contracts after the Closing.
(c) All liabilities (i) relating to the ownership and operation of
the Assets arising from and after the Closing Date, (ii) set forth in
SCHEDULE 1.5(c) and (iii) to NationsBank, Texas, N.A. under the Company's
promissory note dated April 21, 1994, in the original principal amount of
$2,592,775.02, up to a maximum amount outstanding at the Closing of
$799,449, are assumed by Buyer (the "Assumed Liabilities"). At Closing,
Buyer shall pay or cause to be paid, in full, the NationsBank note up to a
maximum amount of $799,449.
1.6 EXPENSES: TITLE INSURANCE, CONSENTS AND TAXES. The Company shall pay,
or cause to be paid, the costs and expenses of obtaining the commitment for
title insurance and all premiums with respect to the owner's policy of title
insurance contemplated by and described in Section 1.3(a) hereof, except for the
additional premiums under Section 1.3(a)(i) and (iii). Buyer shall assume
responsibility for and shall bear and pay all state sales and use taxes
resulting from the consummation of the transactions contemplated hereby and
Company and Buyer agree to cooperate to obtain all available exemptions from
such taxes. In addition, Buyer shall reimburse the Company for all fees, costs
and expenses incurred by the Company in respect of KPMG Peat Marwick, L.L.P.,
independent public accountants, in connection with the preparation of audited
financial statements, if any, of the Company required by Rule 3-05 of the rules
and regulations of the Securities and Exchange Commission. The Company agrees to
execute a management representation letter in connection with such audited
financial statements.
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1.7 ALLOCATION OF DRILLING CONTRACT REVENUE. To implement the provisions
of Sections 1.2(b) and 1.1(h) hereto, the Company shall prepare invoices for all
day rate drilling Contracts for periods up to the Closing Date and the Buyer
shall prepare invoices for periods after the Closing. With respect to turnkey or
footage basis drilling contracts ongoing on the Closing Date, the Buyer shall
conduct the accounting for such Contracts in cooperation with the Company
through the completion of the relevant well, and shall invoice the customer on
behalf of both parties. With respect to each such turnkey contract, the Buyer
shall determine the expenses for the well and the revenue for the well, and
remit to the Company its pro rata portion of the revenue net of expenses (or
bill the Company for its pro rata portion of any loss) based upon the number of
days drilling completed before and after the Closing Date.
2. CLOSING; PURCHASE PRICE.
2.1 CLOSING DATE. The closing with respect to the transactions provided
for in this Agreement (the "Closing") shall take place at a time and place to be
mutually agreed to by the parties, within five business days after the
satisfaction or waiver of all of the conditions precedent described in Section
5. The actual time and date of the Closing are herein called the "Closing Date".
2.2 PURCHASE PRICE AND PAYMENT. As consideration for the Assets, and
subject to the terms and conditions of this Agreement, Buyer shall cause its
parent, DI Industries, Inc. ("DI"), to issue to the Company a total of
12,426,000 shares of DI's common stock, par value $0.10 (the "DI Stock") as the
purchase price (the "Purchase Price"). The Purchase Price shall be paid by
delivery to the Company on the Closing Date of a certificate or certificates for
the DI Stock.
2.3 PURCHASE PRICE ALLOCATION. Attached hereto as SCHEDULE 2.3 is an
allocation of the Purchase Price (in shares of DI Stock) among the Assets,
together with an allocation in dollar value of the motor vehicles for state
sales tax purposes.
2.4 PRORATIONS. Ad valorem and similar taxes and assessments relating to
the Assets shall be prorated between Buyer and the Company as of the Closing
Date based upon estimates of the amount of such taxes and assessments that will
be due and payable on the Assets during the year during which the Closing Date
occurs. As soon as the amount of actual taxes and assessments is known, Buyer
and the Company shall readjust the amount to be paid by each party with the
result that the Company shall pay for those taxes and assessments attributable
to the period of time up to and including the Closing Date and Buyer shall pay
for those attributable to the period thereafter.
2.5 TAX FREE REORGANIZATION. The parties intend that the transactions
contemplated by this Agreement shall constitute and be treated as a tax-free
reorganization under ss.368(a)(1)(c) of the Code, and agree to use reasonable
best efforts to have the transaction so classified, including the parties'
reporting the transaction consistently with such intent. Buyer and the Company
shall cooperate between the date hereof and the Closing Date to take such
actions (including modifying this Agreement) as may be reasonably requested by
the other party to
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ensure such treatment so long as such actions do not have an
adverse economic impact on the party requested to take such action.
3. REPRESENTATIONS AND WARRANTIES.
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to Buyer as follows:
(a) DUE ORGANIZATION; GOOD STANDING AND POWER. The Company is a
corporation duly organized, validly existing and in good standing under
the laws of the state of Texas. The Company has the corporate power and
authority to own, lease and operate the Assets and to conduct the
Business. The Company is duly authorized, qualified or licensed to do
business as a foreign corporation and is in good standing in each
jurisdiction in which its right, title or interest in or to any of the
Assets, or the conduct of the Business, requires such authorization,
qualification or licensing, except where the failure to so qualify or to
be in good standing in such other jurisdictions would not have a material
adverse effect on any of the Assets, the Business or the results of
operations of the Company. No actions or proceedings to dissolve the
Company are pending.
(b) VALIDITY OF AGREEMENT; APPROVALS; NO CONFLICT WITH INSTRUMENTS.
The execution, delivery and performance of this Agreement by the Company
has been duly authorized by all requisite action on its part. No other
corporate action is necessary for the authorization, execution, delivery,
and performance by the Company of this Agreement and the consummation by
the Company of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by the Company and constitutes a legal,
valid and binding obligation of the Company, enforceable against it in
accordance with its terms, except as the same may be limited by
bankruptcy, insolvency or other similar laws affecting creditors' rights
generally and by general equity principles. Except as described in
SCHEDULE 3.1(b) hereto the execution, delivery and performance of this
Agreement by the Company and the consummation by it of the transactions
contemplated hereby (i) will not violate (with or without the giving of
notice or the lapse of time or both) or require any consent, approval,
filing or notice under, any provision of any law, rule or regulation,
court order, judgment or decree applicable to the Company; (ii) will not
result in the creation of any Encumbrance (other than any Permitted
Encumbrances) on the Assets under, conflict with, or result in the breach
or termination of any provision of, or constitute a default under, or
result in the acceleration of the performance of the obligations of the
Company under, or result in the creation of a lien, charge or Encumbrance
(other than Permitted Encumbrances) upon any portion of the assets of the
Company pursuant to, the charter or by-laws of the Company, or any
indenture, mortgage, deed of trust, lease, licensing agreement, contract,
instrument or other agreement to which the Company is a party or by which
it or any of its assets is bound or affected (except for any necessary
consents to transfer or assign Contracts); and (iii) will not require any
consent, approval, waiver, order or authorization of, or
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registration, declaration or filing with, any Governmental Entity, except
for (x) the filing pursuant to the HSR Act and (y) any necessary consents
to transfer or assign Permits, to the extent the same are transferable or
assignable.
(c) FINANCIAL INFORMATION AND ABSENCE OF CERTAIN CHANGES. The
Company has delivered to Buyer accurate and complete copies of the
Company's unaudited consolidated balance sheets as of December 31, 1995
and December 31, 1994 and the related unaudited consolidated statements of
income, stockholders' equity and cash flows for the years then ended,
prepared in conformity with GAAP, and a copy of its unaudited consolidated
statement of assets, liabilities and equity-income tax bases as of October
31, 1996, and the related unaudited consolidated statements of revenues,
expenses and retained earnings-income tax basis and of cash flows-income
tax basis for the ten months then ended (the "Financial Statements"). The
Financial Statements (i) represent actual bona fide transactions, (ii)
have been prepared from the books and records of the Company in conformity
with GAAP applied on a basis consistent with preceding years for 1995 and
1994 and for the period ending in 1996 in conformity with the basis used
by the Company for income tax purposes, and (iii) accurately, completely
and fairly present the Company's consolidated financial position as of the
respective dates thereof and its consolidated results of operations and
cash flows for the years 1995 and 1994 and for the period ending in 1996,
present the Company's consolidated assets, liabilities, equity, revenues,
expenses and cash flows on the income tax basis of accounting. The income
tax basis is a comprehensive basis of accounting other than generally
accepted accounting principles. The Company has no liability or obligation
that would materially and adversely affect the Business, Assets or the
Company, whether accrued, absolute, contingent, or otherwise, except as
set forth on the October 31, 1996 Statement of Assets, Liabilities and
Equity-Income tax basis or SCHEDULE 3.1(c). Since October 31, 1996, there
has not been any adverse change in the Business, Assets, liabilities,
financial condition or operations of the Company from that reflected
therein, except for changes in the ordinary course of business, none of
which will be material, either individually or in the aggregate.
(d) TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES. The
Company owns (except as described in SCHEDULE 3.1(d) hereto) good and
marketable title to all of the Assets, free and clear of all Encumbrances,
and other restrictions of any kind and nature, other than Permitted
Encumbrances.
(e) CONTRACTS. SCHEDULE 3.1(e) lists all contracts to which the
Company is a party which are Assets or affect the operation of the Assets.
The Company has made available to the Buyer a correct copy of each
Contract that is in the Company's possession. With respect to each
Contract: (A) as of the date hereof, the Contract is legal, valid,
binding, enforceable, and in full force and effect (except as to
enforceability of indemnity provisions); (B) except as set out on SCHEDULE
3.1(c) the Contract will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms following the
consummation of the transactions contemplated hereby (including the
assignments and assumptions referred to in Section 1.3 above), except as
to enforceability
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of indemnity provisions; (C) to the Company's knowledge, (i) no party is
in breach or default, and (ii) no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the Contract, which breach, or
default, termination, modification or acceleration would have a material
adverse effect on the Buyer; and (D) no party has repudiated any provision
of the Contract, which repudiation would have a material adverse effect on
the Buyer.
(f) PERMITS AND OTHER DATA. SCHEDULE 3.1(f) hereto contains a
complete and correct list of all Permits (other than sales and use tax
Permits and franchise tax registrations). True and complete copies of all
documents (including all amendments thereto) referred to in SCHEDULE
3.1(f) hereto have been delivered to or made available for inspection by
Buyer. To the knowledge of Company, all Permits are in full force and
effect and are valid and enforceable in accordance with their respective
terms, except where the failure to be in full force and effect and valid
and enforceable would not in the aggregate have a material adverse effect
on the Assets or on the Company's results of operations. To the knowledge
of the Company, the Company and its respective Affiliates are not in
breach or default in the performance of any material obligation thereunder
and no event has occurred or has failed to occur whereby any of the other
parties thereto have been or will be released therefrom or will be
entitled to refuse to perform thereunder. Except as set forth in SCHEDULE
3.1(f) hereof, to the knowledge of Company, there are no Permits to which
the Company or any of its Affiliates is a party which are material to the
ownership of any of the Company's Assets or to the conduct of the
Business.
(g) LEGAL PROCEEDINGS. Except as described in SCHEDULE 3.1(g)
hereto, (i) there is no litigation, proceeding, claim or governmental
investigation pending or, to the knowledge of the Company, threatened
seeking relief or damages which, if granted, would materially and
adversely affect the Assets, or the ability of Buyer to use and operate
the Assets of the Company or which would prevent the consummation of the
transactions contemplated by this Agreement or which is not adequately
covered by insurance and (ii) the Company has not been charged with any
violation of or, to the knowledge of the Company, threatened with a charge
or violation of, nor is the Company aware of any facts or circumstances
that, if discovered by third parties, could give rise to a charge or a
violation of, any provision of Applicable Law or regulation which charge
or violation, if determined adversely to the Company, would materially and
adversely affect the Business or the results of operations of the Company
or that might reasonably be expected to materially affect the right of
Buyer to own the Assets or operate the Business after the Closing Date in
substantially the manner in which it is currently operated.
(h) INTELLECTUAL PROPERTY. Except for the Intellectual Property set
forth on SCHEDULE 3.1(h) hereto, the Company does not own, hold, use, or
have pending any material Intellectual Property in connection with the
operation of its Assets and Business.
(i) CONDUCT OF BUSINESS IN COMPLIANCE WITH REGULATORY AND
CONTRACTUAL REQUIREMENTS. Except as described on SCHEDULE 3.1(i) hereto,
the Company has conducted
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the Business so as to comply with all Applicable Laws, Permits, licenses,
know-how or other proprietary rights of others, the failure to comply with
which would individually or in the aggregate have a material adverse
effect on the Business or the results of operations of the Company.
Nothing in this Section 3.1(i) or anywhere else in this Agreement shall be
deemed to constitute a representation or warranty with respect to
Environmental Laws or Hazardous Materials, such matters being covered
solely by Section 3.1(k).
(j) CERTAIN FEES. Neither Company nor any of its officers, directors
or employees has employed any broker or finder or incurred any other
liability for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated hereby.
(k) ENVIRONMENTAL, HEALTH AND SAFETY COMPLIANCE. Except as described
on SCHEDULE 3.1(k) hereto, and except where the failure of any of the
following statements to be true would not result in a material adverse
effect on the Assets and Business taken as a whole, for the period
beginning with the time at which the Company acquired the Assets:
(i) to the Company's knowledge, the Company is, and has
continuously been, in compliance with all Environmental Laws;
(ii) to the Company's knowledge, all material notices,
Permits, or similar authorizations, if any, required to be obtained
or filed under any Environmental Law in connection with the
operation of the Business have been obtained or filed;
(iii) to the Company's knowledge, there are no past, pending
or threatened investigations, proceedings or claims against the
Company relating to the presence, release or remediation of any
Hazardous Material or for non-compliance with any Environmental Law;
(iv) to the Company's knowledge, the Company has not treated,
stored or disposed of any Hazardous Materials on any property that
is or was owned or leased by the Company;
(v) to the Company's knowledge, none of the properties owned,
leased or operated by the Company has been used by the Company as
landfill or waste disposal sites or contain any underground storage
tanks placed therein or thereon by the Company;
(vi) to the Company's knowledge, there are no conditions or
circumstances which exist or have existed with respect to the
Company, including without limitation the off-site disposal of
Hazardous Materials, that could impose any liability on Buyer with
respect to any Environmental Law;
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(vii) to the Company's knowledge, the Company is not liable to
any person as a result of any Hazardous Material generated, treated
or stored on the Real Estate or discharged, emitted, released or
transported from the Real Estate;
(viii) to the Company's knowledge, there are no conditions or
circumstances which exist or have existed, and no activities
occurring or which have occurred, that are resulting or have
resulted in the exposure of any person or property to a Hazardous
Material such that the owner of the Real Estate or of the Business
may in the future be liable to such persons or to the owners of such
property for personal or other injuries or damages resulting from
such exposure; and
(ix) there are no federal or state air emission credits or air
or water discharge Permits related to the Real Estate.
For purposes of this Agreement, the term "Environmental Laws" shall mean,
as to any given asset or operation of the Company, all applicable laws,
statutes, ordinances, rules and regulations of any Governmental Entity
pertaining to protection of the environment in effect as of the Closing
Date. For purposes of this Agreement, the term "Hazardous Material" shall
mean any substance which is listed or defined as a hazardous substance,
hazardous constituent or solid waste pursuant to any Environmental Law.
(l) TAXES. The Company has caused to be timely filed with
appropriate federal, state, local and other Governmental Entities all Tax
Returns required to be filed with respect to the Company or the conduct of
the Business and has paid, caused to be paid, or adequately reserved in
the Financial Statements all Taxes due or claimed to be due from or with
respect to such Tax Returns, unless such failure to pay or cause to be
paid or adequately reserved in the Financial Statements would not have a
material adverse effect on the financial condition of the Company or the
Assets.
(m) RIGHTS OF THIRD PARTIES. Except as specifically set forth on one
or more of the Schedules hereto, the Assets are transferable and
assignable to Buyer as contemplated by this Agreement without the waiver
of any right of first refusal or the consent of any other party being
obtained, and there exists no preferential right of purchase in favor of
any person with respect to any of the Assets or the Business.
(n) ADDITIONAL INFORMATION. SCHEDULE 3.1(n) hereto contains accurate
lists and summary descriptions of the following:
(i) the names and titles of and salary or current hourly rates
for all employees of the Company;
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(ii) all names under which the Company has conducted any
business or which any of them has otherwise used;
(iii) a listing of all performance and similar bonds and
letters of credit currently posted by, or any certificate of
financial responsibility or similar evidence of financial
accountability obtained or procured by, the Company for the purpose
of operating the Assets or otherwise conducting the Business; and
(iv) a schedule showing the Company's tax basis for Federal
Income Tax purposes in the Assets.
(o) LABOR MATTERS. The Company has not suffered any strike,
slowdown, picketing or work stoppage by any union or other group of
employees. The Company is not a party to any collective bargaining
agreement; no such agreement determines the terms and conditions of
employment of any employee of the Company; no collective bargaining agent
has been certified as a representative of any of the employees of the
Company; and no representation campaign or election is now in progress
with respect to any of the employees of the Company. The Company has not
taken or failed to take any action that is reasonably likely to cause
Buyer to incur any liability in the event Buyer chooses not to employ any
of the Company's employees following the Closing. The Company has complied
in all material respects with all laws relating to the employment of labor
in the conduct of the Business, including provisions thereof relating to
wages, hours, equal opportunity and the payment of pension contributions,
social security and other taxes.
(p) EMPLOYEE BENEFIT PLANS AND ARRANGEMENTS. SCHEDULE 3.1(p) hereto
lists all written employee benefit plans and collective bargaining, labor
and employment agreements and severance agreements or other similar
arrangements (together with all documents or instruments establishing or
constituting any related trust, annuity contract or other funding
instrument), and whether or not legally enforceable, to which the Company
is (or in the past five years has been) a party or by which the Company is
(or in the past five (5) years has been) bound, including (1) any
profit-sharing, deferred compensation, bonus, stock option, stock
purchase, pension, retainer, consulting, retirement, severance, or
incentive compensation plan, agreement or arrangement, (2) any welfare
benefit plan, agreement or arrangement or any plan, agreement or
arrangement providing for "fringe benefits" or perquisites to employees,
officers, directors or agents, including benefits relating to automobiles,
clubs, vacation, child care, parenting or maternity leave, sabbaticals,
sick leave, medical expenses, dental expenses, disability, accidental
death or dismemberment, hospitalization, life insurance and other types of
insurance, (3) any employment agreement, or (4) any other "employee
benefit plan" (within the meaning of Section 3(3) of ERISA) (each, a
"Benefit Plan"); provided that terminated agreements with individual
employees under which the Company has no additional liability are not
listed. Each Benefit Plan has been maintained and contributed to in
compliance with the requirements of Applicable Law, except for such
failures to
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maintain or contribute that would not, in the aggregate, have a material
adverse effect on the financial condition of the Company or on the Assets.
The Company has paid and discharged when due all obligations and
liabilities arising under such Benefit Plans and Applicable Law of a
character which, if not paid or discharged, might result in the imposition
of an Encumbrance (other than a Permitted Encumbrance) or the assertion of
a liability enforceable against the Assets or the Buyer.
(q) GUARANTEES. Except as disclosed on SCHEDULE 3.1(q), the Company
is not a guarantor or otherwise is liable for any liability or obligation
(including indebtedness) of any other person.
(r) TRANSACTIONS WITH AFFILIATES. Except as disclosed on SCHEDULE
3.1(r), no shareholder, director or officer of the Company or any
associate of any such shareholder, director or officer is currently,
directly or indirectly, a party to any transaction with the Company
relating to the Business, including any agreement, arrangement or
understanding, written or oral, providing for the employment of,
furnishing of services by, rental of real or personal property from, or
otherwise requiring payments to any such shareholder, director, officer or
associate.
(s) PLAN OF DISTRIBUTION. Except for a distribution of DI Stock to
the Shareholders upon a liquidation of the Company, the Company has no
current plan or intention to engage in a sale, exchange, transfer,
distribution, pledge, or other disposition, or otherwise reduce its risk
of ownership of, the DI Stock.
3.2 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants
to the Company as follows:
(a) DUE ORGANIZATION; GOOD STANDING AND POWER. The Buyer is a
corporation duly organized, validly existing and in good standing under
the laws of the state of Texas. The Buyer has the corporate power and
authority to own, lease and operate the Assets and to conduct the
Business. The Buyer is duly authorized, qualified or licensed to do
business as a foreign corporation and is in good standing in each
jurisdiction in which its right, title or interest in or to any of the
assets, or the conduct of the business, requires such authorization,
qualification or licensing, except where the failure to so qualify or to
be in good standing in such other jurisdictions would not have a material
adverse effect on any of its assets, business or the results of operations
of the Buyer. No actions or proceedings to dissolve the Buyer are pending.
(b) AUTHORIZATION AND VALIDITY OF AGREEMENT. The execution, delivery
and performance of this Agreement by the Buyer have been duly authorized
by all requisite action on its part. No other corporate action is
necessary for the authorization, execution, delivery, and performance by
the Buyer of this Agreement and the consummation by the Buyer of the
transactions contemplated hereby. This Agreement has been duly executed
and delivered by the Buyer and constitutes a legal, valid and binding
obligation of the
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Buyer, enforceable against it in accordance with its terms, except as the
same may be limited by bankruptcy, insolvency or other similar laws
affecting creditors' rights generally and by general equity principles.
Except as would not constitute a material adverse effect on the
transactions contemplated herein, the execution, delivery and performance
of this Agreement by the Buyer and the consummation by it of the
transactions contemplated hereby (i) will not violate (with or without the
giving of notice or the lapse of time or both) or require any consent,
approval, filing or notice under, any provision of any law, rule or
regulation, court order, judgment or decree applicable to the Buyer; (ii)
will not conflict with, or result in the breach or termination of any
provision of, or constitute a default under, or result in the acceleration
of the performance of the obligations of the Buyer under the charter or
by-laws of the Buyer, or any indenture, mortgage, deed of trust, lease,
licensing agreement, contract, instrument or other agreement to which the
Buyer is a party or by which it or any of its assets is bound or affected;
and (iii) will not require any consent, approval, waiver, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity, except for (x) the filing pursuant to the HSR Act and
(y) any necessary consents to transfer or assign Permits, to the extent
the same are transferable or assignable.
(c) NO APPROVALS OR NOTICES REQUIRED; NO CONFLICT WITH INSTRUMENTS.
The execution, delivery and performance of this Agreement by Buyer and the
consummation by it of the transactions contemplated hereby (i) will not
violate (with or without the giving of notice or the lapse of time or
both), or require any consent, approval, filing or notice under any
provision of any law, rule or regulation, court order, judgment or decree
applicable to Buyer, and (ii) will not conflict with, or result in the
breach or termination of any provision of, or constitute a default under,
or result in the acceleration of the performance of the obligations of
Buyer, under, the charter or bylaws of Buyer or any indenture, mortgage,
deed of trust, lease, licensing agreement, contract, instrument or other
agreement to which Buyer is a party or by which Buyer or any of its assets
or properties is bound.
(d) CERTAIN FEES. Neither Buyer nor any of its officers, directors
or employees, on behalf of it, has employed any broker or finder or
incurred any other liability for any brokerage fees, commissions or
finders' fees in connection with the transactions contemplated hereby.
(e) SEC FILINGS. The Buyer has heretofore made available to the
Company all reports, registration statements and other filings filed by DI
with the Securities and Exchange Commission since January 1, 1996 (the "DI
Commission Filings"). As of their respective dates, the DI Commission
Filings did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in
order to make the statements contained therein, in light of the
circumstances under which they were made, not misleading. Each of the DI
Commission Filings was prepared in material compliance with all Applicable
Laws. The audited consolidated financial statements and unaudited
consolidated interim financial statements of DI included in the
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DI Commission Filings present fairly, in conformity with generally
accepted accounting principles applied on a consistent basis (except as
may be indicated in the notes thereto), the consolidated financial
position of DI as of the dates thereof and its consolidated results of
operations and cash flows for the periods then ended (subject to normal
year-end audit adjustments in the case of any unaudited interim financial
statements). Since September 30, 1996, there has not been any material
adverse change in the business, assets, results of operations or condition
(financial or otherwise) of DI and its subsidiaries considered as a whole,
or other material and adverse event or occurrence which, under Applicable
Law, would necessitate the filing of a report on Form 8- K.
3.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The respective
representations and warranties of the parties contained herein shall survive the
Closing for a period of eighteen (18) months; provided that there shall be no
expiration of any such representation or warranty as to which a bona fide claim
has been asserted by written notice of such claim delivered to the party or
parties making such representation or warranty during the survival period. This
Section 3.3 shall not at any time relieve any party hereto from the performance
of such party's agreements, covenants and undertakings set forth in this
Agreement. Notwithstanding the above, Section 3.1(k) shall not survive the
Closing.
3.4 SCOPE OF REPRESENTATIONS OF THE COMPANY. THE COMPANY MAKES NO
REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE MAINTENANCE,
REPAIR, CONDITION, DESIGN OR MARKETABILITY OF THE REAL ESTATE (EXCEPT AS
OTHERWISE PROVIDED HEREIN) OR ANY OF THE VEHICLES, INVENTORY, DRILL STRING, OR
ANY OF THE RIGS OR ANY PORTION THEREOF OR PROPERTY THEREON, INCLUDING, BUT NOT
LIMITED TO, ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, IT BEING THE EXPRESS AGREEMENT OF BUYER AND THE COMPANY
THAT, EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, BUYER WILL OBTAIN THE
REAL ESTATE AND THE VEHICLES, INVENTORY, DRILL STRING AND RIGS IN THEIR
CONDITION AND STATE OF REPAIR ON THE CLOSING DATE, "AS IS," AND "WHERE IS."
4. COVENANTS; ACTIONS PRIOR TO CLOSING.
4.1 ACCESS TO INFORMATION. During the period beginning on the date hereof
and ending on the Closing Date, the Company will (a) give or cause to be given
to Buyer and its representatives such access, during normal business hours, to
the plant, properties, books and records of the Company as Buyer shall from time
to time reasonably request and (b) furnish or cause to be furnished to Buyer
such financial and operating data and other information with respect to the
Company as Buyer shall from time to time reasonably request. Buyer and its
representatives shall be entitled, in consultation with the Company, to such
access to the representatives, officers and employees of the Company as Buyer
may reasonably request. The Company shall permit Buyer and its representatives
to confirm, on reasonable notice and on the basis of agreed methods, with the
Company's principal vendors, customers, and trade Affiliates,
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that the acquisition by Buyer of the Company will be acceptable to such vendors,
customers, and trade Affiliates and that the acquisition will not adversely
affect the relationship of such vendors, customers and trade Affiliates with the
Business. The Company agrees that such access by Buyer and its representatives
shall include the right to perform a soil and groundwater analysis of the Real
Estate and to conduct such other environmental investigations of the Real Estate
as Buyer shall deem necessary or appropriate to determine on-site conditions and
the presence or absence of any Hazardous Materials. After conducting such
investigations, Buyer shall restore all property of the Company to its original
condition and indemnify the Company for all damages to the Company arising out
of such investigation. In connection with such environmental investigations, the
Company will provide to or make available for inspection by Buyer and its
representatives (i) all records relating to the disposal of waste materials
generated at the Real Estate; (ii) all environmental Permits and records
relating to compliance with such Permits; (iii) all records of spills or other
releases; (iv) all records relating to employee exposure to workplace chemicals;
(v) all environmental audits or assessments; (vi) all insurance records relating
to coverage for environmental incidents affecting the Real Estate; (vii) all
chemical inventories and reports of chemical emissions; (viii) all
correspondence relating to pending or threatened environmental claims; and (ix)
all records obtained from prior owners or operators of the Real Estate relating
to environmental conditions.
4.2 CONDUCT OF THE BUSINESS. Except as specifically required or
contemplated by this Agreement or otherwise consented to or approved in writing
by Buyer, during the period commencing on the date hereof and ending on the
Closing Date, the Company will:
(a) conduct the Business only in the usual, regular and ordinary
manner consistent with current practice and, to the extent consistent with
such operation, use its reasonable efforts to keep available the services
of the present employees of the Company and preserve the Company's present
relationships with persons having business dealings with the Company;
(b) maintain the Company's books, accounts and records in the usual,
regular and ordinary manner, on a basis consistent with past practice, and
comply in all material respects with all Applicable Laws and other
obligations of the Company;
(c) not (i) sell, lease or otherwise dispose of any assets of the
Business other than sales of assets in the ordinary course of business,
(ii) modify or change in any material respect any contract of the Company
relating to the Business, other than in the ordinary course of business or
(iii) agree, whether in writing or otherwise, to do any of the foregoing;
(d) not (i) permit or allow any of the assets of the Company
relating to the Business to become subject to any liens or Encumbrances
(other than Permitted Encumbrances), (ii) waive any claims or rights
relating to the Assets, except in
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the ordinary course of business and consistent with past practice, (iii)
grant any increase in the compensation of any employees employed in the
conduct of the Business, except in the ordinary course of business or as
required by contractual arrangements existing on the date hereof, (iv)
enter into any agreements giving rise to trade and barter obligations
relating to the assets of the Company, or (v) agree, whether in writing or
otherwise, to do any of the foregoing;
(e) maintain the inventory associated with each drilling rig,
including spare components and parts, supporting inventory, drill pipe and
tubulars, in such amounts and of such quality as would be in accordance
with past practice and comparable historical levels and sufficient to
comply with any applicable Contract under which such drilling rig is
operating, provided that it is agreed that the Company shall not be
required to replace inventory or equipment that is lost due to casualty
and that is not covered by insurance or reimbursed by the operator; and
(f) not execute drilling contracts on a turnkey basis without the
prior written consent of Buyer.
4.3 SURVEY AND TITLE INSURANCE COMMITMENT. Prior to the Closing Date, the
Company shall obtain at its expense and provide to Buyer (i) a survey of the
Real Estate prepared by a licensed surveyor and (ii) commitments for title
insurance covering the Real Estate issued by the Title Company, setting forth
the status of title to the Real Estate and listing all encumbrances of record,
shown by the surveys or known to the Company or any of its Affiliates, together
with legible copies of all instruments referred to in such commitment as
constituting exceptions to or restrictions upon the fee simple title of the
Company to the Real Estate. If such commitment shall reveal material
Encumbrances affecting Real Estate which are not Permitted Encumbrances, and if
the Company does not take such steps as shall be necessary to cause any material
Encumbrances affecting the Real Estate which are not Permitted Encumbrances to
be removed or cured prior to the Closing, the Buyer may eliminate the affected
Real Estate as an Asset to be purchased by Buyer and reduce the Purchase Price
by the amount allocated thereto on SCHEDULE 2.3. The survey shall (a) reflect
the actual dimensions of, and area within, the Real Estate, the location of all
easements, set-back lines, encroachments or overlaps thereon or thereover, and
the outside boundary lines of all improvements, (b) identify all (except solely
as any such exception relates to encroachments constituting Permitted
Encumbrances), easements, set-back lines and other matters referred to in the
title commitment, (c) include the surveyor's registered number and seal, the
date or dates of the survey and a certificate satisfactory to Buyer of such
surveyor, (d) reflect that there is access to and from the Land from a publicly
dedicated street or road, (e) be sufficient to cause the Title Company to delete
the printed exception for "discrepancies, conflicts or boundary lines, or
encroachments, or any overlapping of improvements" from the owner's title
insurance policy to be delivered pursuant to Section 1.3(a) hereof (except
solely as any such exception relates to encroachments constituting Permitted
Encumbrances), (f) reflect any area that has been designated by the Federal
Insurance Administration, the Army Corps of Engineers or any other governmental
agency or body as being subject to special or increased flooding hazards, (g)
show all items of record affecting such property, (h) contain a metes and bounds
description of each such parcel of Real Estate and (i) in general, comply with
the requirements of an ALTA/ASCM land title survey. For purposes of
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the property description to be included in the special warranty deed and in the
owner's policy of title insurance delivered pursuant to Section 1.3(a) hereof,
the field notes prepared by the surveyor shall control any conflicts or
inconsistencies between such field notes and the legal description in SCHEDULE
1.1(a) hereto.
4.4 FURTHER ACTIONS. Subject to the terms and conditions hereof, the
Company and Buyer will each use their reasonable best efforts to take, or cause
to be taken, all action and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective the transactions
contemplated by this Agreement, including using reasonable best efforts: (i) to
obtain prior to the Closing Date all Permits, consents, approvals,
authorizations, qualifications and orders of Governmental Entities and parties
to Contracts as are necessary for the consummation of the transactions
contemplated hereby; (ii) to effect all necessary registrations and filings; and
(iii) to furnish to each other such information and assistance as reasonably may
be requested in connection with the foregoing. Where the consent of any third
party is required under the terms of any of the Company's leases or contracts to
the transactions contemplated by this Agreement, the Company will use reasonable
best efforts to obtain such consent on terms and conditions not less favorable
than as in effect on the date hereof. The Company and Buyer shall cooperate
fully with each other to the extent reasonably required to obtain such consents.
Notwithstanding any other provision hereof, this Agreement shall not constitute
or require an assignment to Buyer of any Contract, Permit, or other right if an
attempted assignment of the same without the consent of any party would
constitute a breach thereof or a violation of Applicable Law unless and until
such consent shall have been obtained.
4.5 NOTIFICATION. The Company shall promptly notify Buyer in writing and
keep it advised as to (i) any litigation or administrative proceeding filed or
pending against the Company or, to its knowledge, threatened against it, which
would (x) have a material adverse effect on the Assets or (y) challenge the
transactions contemplated hereby; (ii) any material damage or destruction of any
of the Assets of the Company; (iii) any material adverse change in the results
of operations of the Company; and (iv) any variance from the representations and
warranties contained in Section 3.1 hereof or of any failure or inability on the
part of the Company to comply with any of its covenants contained in this
Section 4.
4.6 NO INCONSISTENT ACTION. Subject to Sections 6.1 and 6.2 hereof, no
party hereto shall take any action inconsistent with its obligations under this
Agreement or which could materially hinder or delay the consummation of the
transactions contemplated by this Agreement. The Company shall use reasonable
efforts to cause the representations and warranties made by it herein to
continue to be true and correct on and as of the Closing Date as if made on and
as of the Closing Date.
4.7 ACQUISITION PROPOSALS. None of the Company, or any Affiliate,
director, officer, employee or representative of any of them shall, directly or
indirectly (i) solicit, initiate or knowingly encourage any Acquisition Proposal
or (ii) engage in discussions or negotiations
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with any person that is considering making or has made an Acquisition Proposal.
The Company shall immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any persons conducted heretofore
with respect to any Acquisition Proposal. The term "Acquisition Proposal," as
used herein, means any offer or proposal for or any indication of interest in, a
merger or other business combination involving the Company, or the acquisition
of an equity interest in or substantial portion of the assets of, the Company,
other than the transactions contemplated by this Agreement.
4.8 HART-SCOTT-RODINO ACT. The Company and the Buyer will each file the
Notification and Report Forms and related material that they are required to
file with the Federal Trade Commission and the Antitrust Division of the United
States Department of Justice under the HSR Act, will use their reasonable
efforts to obtain an early termination of the applicable waiting period, and
will make any further filings pursuant thereto that may be necessary, proper, or
advisable, provided, however, that the reasonable efforts of Buyer shall not
include (a) proffering Buyer's willingness to accept an order providing for the
divestiture of such of the properties, assets, operations, or business of the
Company (or, in lieu thereof, such properties, assets, operations, or business
of Buyer or any of Buyer's Affiliates) as are necessary to permit the
consummation of the transactions contemplated by this Agreement, including an
offer to hold separate such properties, assets, operations or businesses pending
any such divestiture, (b) proffering Buyer's willingness to accept any other
conditions, restrictions, limitations or agreements affecting the full rights of
ownership of the Company's assets (or any portion thereof) as may be necessary
to permit the consummation of the transactions contemplated by this Agreement,
or (c) entering into or continuing any litigation relating to this Agreement or
the transactions contemplated hereby and the reasonable efforts of the Company
shall not include entering into or continuing any litigation relationship
relating to this Agreement or the transactions contemplated hereby. The Buyer
will pay any filing fees incurred by the Company or Mr. Flournoy in connection
with any required HSR Act filings.
4.9 PUBLIC ANNOUNCEMENTS. Neither Buyer and DI, on the one hand, nor the
Company, on the other, shall issue any press release or otherwise make any
public statements with respect to this Agreement or the transactions
contemplated hereby without first consulting with and obtaining the consent of
the other party; provided, however, nothing herein shall prohibit DI from making
any disclosure or announcement required by law or regulation or rules of the
American Stock Exchange.
4.10 ASSET LOSS. Notwithstanding any other provision of this Agreement:
(a) If any Rig or Vehicle shall become an actual or constructive
total loss (as determined by the Company's insurance underwriter) prior to
the Closing Date: (i) Buyer shall not be required to purchase such Rig or
Vehicle, (ii) the Purchase Price shall be reduced by the amount allocated
to such Rig or Vehicle pursuant to SCHEDULE 2.3, (iii) the term "Assets"
shall be deemed not to include such Rig or Vehicle and the Company shall
be entitled to any insurance proceeds and claims with respect thereto (and
such proceeds and claims shall be deemed to be Excluded Assets for all
purposes hereunder) and (iv) the other provisions of this Agreement shall
continue to be in effect and the Closing shall take place in the manner
contemplated herein.
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(b) If a Rig or Vehicle sustains damage (estimated to cost more than
$10,000 to repair) not amounting to an actual or constructive total loss
prior to the Closing Date, at the Company's election either (i) the
Company shall repair or cause to be repaired the damage to the Rig or
Vehicle at the Company's own expense or (ii) elect not to repair such Rig
or Vehicle. In the case of an election under 4.10(b)(ii), the Buyer may
(x) require the Company to assign to Buyer at the Closing the rights the
Company has to receive insurance proceeds in respect of such loss or
damage or (y) elect to not purchase the Rig or Vehicle and be entitled to
a reduction in Purchase Price equal to its value as set out in SCHEDULE
2.3. In the case of either (i) or (ii)(x) above, Buyer shall remain
obligated to purchase the Assets on the Closing Date and the Purchase
Price shall not be reduced.
4.11 PERFORMANCE BONDS. If the Company has posted a performance or other
similar bond or letter of credit in connection with the Company's ownership or
operation of the Equipment or its performance under a Contract, Buyer and the
Company shall cooperate with each other in order (i) for the Company to obtain
the release of any such bond and (ii) to the extent required, for Buyer to
obtain a substitute bond or letter of credit or to assume the Company's existing
bond. Buyer shall reimburse the Company for all costs incurred by the Company as
a result of the Company's leaving a performance or similar bond or letter of
credit in place after the Closing Date in order to permit Buyer to operate the
Assets after the Closing Date.
4.12 ENVIRONMENTAL MATTERS. As soon as practicable after the date of this
Agreement, the Buyer shall select and retain an environmental consulting firm to
conduct a Phase I environmental study of the Real Estate. The cost of such study
shall be borne by the Buyer. In the event, as a result of such assessment, the
Buyer determines in its sole discretion that there is an environmental issue
with the Real Estate, the Buyer shall have the right to either (i) proceed with
the Closing and purchase of the Real Estate, or (ii) elect to exclude the
affected Real Estate from the Assets it purchases hereunder without any
reduction in the Purchase Price and proceed with the Closing hereunder.
5. CONDITIONS PRECEDENT.
5.1 CONDITIONS PRECEDENT TO OBLIGATIONS OF ALL PARTIES. The respective
obligations of the parties to consummate the transactions contemplated by this
Agreement shall be subject to the satisfaction (or waiver by each party) at or
prior to the Closing Date of each of the following conditions:
(a) NO GOVERNMENTAL ACTION. No action of any private party or
Governmental Entity shall have been taken or threatened and no statute,
rule, regulation or executive order shall have been proposed, promulgated
or enacted by any Governmental Entity which seeks to restrain, enjoin or
otherwise prohibit or to obtain damages or other relief in connection with
this Agreement or the transactions contemplated hereby.
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(b) TERMINATION UNDER HART-SCOTT-RODINO ACT. The termination or
early termination of the applicable waiting period under the HSR Act shall
have occurred.
(c) SHAREHOLDER AGREEMENTS. The Buyer, DI, and each Shareholder
shall have entered a Shareholder Agreement as provided in Section 8.4
hereof.
5.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER. The obligations of Buyer
under this Agreement are subject to the satisfaction (or waiver by Buyer) at or
prior to the Closing Date of each of the following conditions:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties of the Company (other than representations and warranties
in Section 3.1(k) and any other representations and warranties with
respect to the Company's Real Estate for which Buyer's sole remedy shall
be the exclusion of such Real Estate from the Assets as set forth in
Sections 4.3 and 4.12 and the reduction in Purchase Price as set forth in
Section 4.3) contained herein or in any certificate or document delivered
to Buyer pursuant hereto shall be true and correct on and as of the
Closing Date, with the same force and effect as though such
representations and warranties had been made on and as of the Closing
Date.
(b) PERFORMANCE OF AGREEMENTS. The Company shall have performed all
material obligations and agreements, and complied in all material respects
with all covenants and conditions, contained in this Agreement to be
performed or complied with by it prior to or at the Closing Date.
(c) OFFICERS CERTIFICATE. The Buyer shall have been furnished with a
certificate of a senior officer of the Company as to the satisfaction of
the conditions set forth in Sections 5.2(a) and (b) above.
(d) ACTIONS AND PROCEEDINGS. All corporate actions, proceedings,
instruments and documents required to carry out the transactions
contemplated by this Agreement or incidental thereto and all other related
legal matters shall be reasonably satisfactory to counsel for Buyer, and
such counsel shall have been furnished with such certified copies of such
corporate actions and proceedings and such other instruments and documents
as it shall have reasonably requested.
(e) LICENSES AND CONSENTS. All Permits, approvals, authorizations,
qualifications and orders of Governmental Entities (including any air and
water discharge permits required by the United States Environmental
Protection Agency) which are reasonably necessary to enable Buyer to own
the Assets and conduct the Business after the Closing in substantially the
same manner as the assets of the Company are owned and the Business is
being conducted as of the date hereof shall be in full force and effect.
All consents for Consent Required Contracts shall have been obtained.
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(f) OPINION OF COUNSEL OF THE COMPANY. Matthews & Branscomb, counsel
for the Company, shall have furnished to Buyer its written opinion, dated
the Closing Date, substantially in the form attached as EXHIBIT D.
(g) MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in the Assets or the Business from the date of this
Agreement until the Closing Date.
(h) RIG AUDIT. The Rigs, Vehicles, Inventory and Drill String of the
Company shall be in good and usable condition taken as a whole.
(i) PAYOFF LETTERS. The Company shall have provided Buyer, with
respect to any Retained Liabilities, Uniform Commercial Code financing
statements executed by the secured party, if any, which release any UCC
filed liens or security interests that encumber the Assets, all at the
Company's expense, from its lenders.
5.3 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. The
obligations of Company under this Agreement are subject to the satisfaction (or
waiver by the Company) at or prior to the Closing Date of each of the following
conditions:
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties of Buyer contained herein or in any certificate or document
delivered to the Company pursuant hereto shall be true and correct on and
as of the Closing Date, with the same force and effect as though such
representations and warranties had been made on and as of the Closing
Date, except as contemplated or permitted by this Agreement.
(b) PERFORMANCE OF AGREEMENTS. Buyer shall have performed all
material obligations and agreements, and complied in all material respects
with all covenants and conditions contained in this Agreement to be
performed or complied with by it prior to or at the Closing Date.
(c) ACTIONS AND PROCEEDINGS. All corporate actions, proceedings,
instruments and documents required to carry out the transactions
contemplated by this Agreement or incidental thereto and all other related
legal matters shall be reasonably satisfactory to counsel for the and the
Company, and such counsel shall have been furnished with such certified
copies of such corporate actions and proceedings and such other
instruments and documents as it shall have reasonably requested.
(d) OPINION OF COUNSEL TO BUYER. Gardere Wynne Sewell & Riggs,
L.L.C., counsel for Buyer, shall have furnished to the Company its written
opinion, dated the Closing Date, substantially in the form attached as
EXHIBIT E.
(e) PAYOFF LETTERS. Buyer shall have provided the Company Uniform
Commercial Code financing statements executed by NationsBank of Texas,
N.A. which
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release any UCC filed liens or security interests in the Excluded Assets
that are held by NationsBank of Texas, N.A., and that secure the Assumed
Liabilities described in Section 1.5(c)(iii) hereof.
6. EMPLOYEES.
6.1 EMPLOYMENT. The Company shall terminate its employment relationship
with each of its employees primarily and actively involved in drilling
operations on and as of the Closing Date. Buyer will offer employment to all
employees of the Company primarily and actively involved in drilling operations,
subject to their passing physical and drug screening, as Buyer deems
appropriate. The Company shall provide reasonable assistance to the Buyer in the
hiring process. For each employee to whom the Buyer offers employment, such
employee will be (i) offered a salary or wages at least equal to the current
salary or wages of such employee (ii) offered benefits equivalent to employees
in similar positions at Buyer (which, in the case of Buyer's group health and
welfare plan, shall contain no pre-existing conditions, exclusions or
eligibility waiting periods other than those in effect at the Company and which
have not been satisfied with respect to an employee) and (iii) credited with the
number of years of his or her employment by the Company for the purposes of any
of Buyer's employment plans under which period of service is used to determine
benefits owed thereunder.
6.2 NO BUYER LIABILITY. The Buyer shall have no responsibility, liability
or obligation, whether to employees, former employees, their beneficiaries or to
any other person with respect to, and the Company shall indemnify and hold the
Buyer harmless with respect to, the termination of the employment of the
Company's employees, any liability under the Worker Adjustment and Retraining
Notification Act (WARN) arising as a result of the terminations of employment
relationships contemplated by the first sentence of Section 6.1, any employee
benefit plan, practice, program or arrangement (including the establishment,
operation or termination thereof) maintained for employees of the Company prior
to the Closing. The Company shall remain responsible for all expenses, taxes,
claims, obligations or liabilities associated with, arising out of or relating
to any employee benefit plan, practice, program or arrangement maintained by the
Company with respect to the Company prior to the Closing, including medical or
disability claims incurred but unreported prior to the Closing and medical
benefits with respect to any employee of the Company whose employment by the
Company was terminated on or before the Closing Date to the extent required by
law. Buyer shall be under no obligation to maintain or continue the medical and
long-term disability insurance policies currently maintained by or the Company
for the Company's employees.
7. TERMINATION AND COMPANY'S RIGHT TO UPDATE.
7.1 GENERAL. This Agreement may be terminated and the transactions
contemplated herein may be abandoned (a) by mutual consent of Buyer and the
Company or (b) by any party by notice to the other parties in the event that the
Closing Date shall not have occurred on or before January 31, 1997; provided,
however, that if the Closing Date shall not have occurred on or before such date
due to a breach of this Agreement by one of the parties or an Affiliate of
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such party, that party may not terminate this Agreement; and provided further
that if the Closing Date shall not have occurred on or before such date due to a
failure to obtain a termination of the waiting period under the HSR Act, the
Agreement may not be terminated by either party hereto before February 28, 1997.
7.2 CHANGES FROM DATE OF AGREEMENT TO DATE OF CLOSING The Company shall
have the right and obligation to update any and all schedules, representations,
and warranties to reflect the conduct of the Business and operations of the
Company from the date hereof to the Closing Date (including notification of any
and all litigation that may arise). In the event of a material adverse change in
the Assets or the Business, as its sole remedy Buyer may (a) elect to close and
waive its right to sue for any breach of this Agreement relating to a change
relating to the Assets of the Business disclosed to Buyer on or prior to the
Closing or (b) terminate this Agreement and waive any such right to sue.
7.3 NO LIABILITIES IN EVENT OF TERMINATION. In the event of any
termination of this Agreement as provided above, this Agreement shall forthwith
become wholly void and of no further force or effect and there shall be no
liability on the part of Buyer, the Company or their respective officers,
directors, or agents, except that the provisions of Section 10.1 and Section
10.11 hereof shall remain in full force and effect, and provided that (except as
provided in Section 7.2 above) nothing contained herein shall release any party
from liability for breach of any provision, covenant or agreement contained
herein.
8. COVENANTS; ACTION SUBSEQUENT TO CLOSING.
8.1 POST CLOSING CONSENT. In the event that the Company shall have failed
prior to the Closing Date to obtain consents to the transfer of any Contract,
Permit or other right that cannot be effectively transferred to Buyer without
such consent (a "Consent Required Contract"), the terms of this Section 8.1
shall govern the transfer of the benefits of each such Consent Required
Contract. The Company and Buyer shall use their reasonable best efforts after
the Closing Date to obtain any required consent to the assignment to, and the
assumption by, Buyer of each Consent Required Contract that is not transferred
to the Buyer at the Closing ("Non-assigned Contract"). The Company and Buyer
shall enter into an agreement on the Closing Date with respect to each
Non-assigned Contract providing that until the rights and obligations of the
Company thereunder are transferred to or assumed by Buyer, or, if earlier, until
the termination of such Non-assigned Contract, the Company shall continue to
perform its obligations thereunder and Buyer shall provide such assistance, at
the sole expense of Buyer, as the Company may reasonably request for such
purpose, including the use of personnel and assets (by lease or otherwise) of
Buyer and its Affiliates of the type and quantity that the Company would have
used to perform such Non-assigned Contract had the transactions contemplated by
this Agreement not been consummated. Such agreement shall also provide that in
consideration of the provision of such assistance, the Company shall, promptly
after the payment of any amounts to the Company by the other party to a
Non-assigned Contract, pay such amounts to Buyer after subtracting therefrom the
reasonable direct costs and expenses actually incurred by the Company as a
result of its performance of the Non-assigned Contract. The parties hereto
acknowledge and agree that
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it is the mutual intent of the parties that all benefits and burdens (except
those accrued as of the Closing Date) with respect to the foregoing shall be
borne by Buyer after the Closing Date and, at the Closing, the parties agree to
enter into an agreement to such effect.
8.2 ACCESS TO BOOKS AND RECORDS.
(a) Until the third anniversary of the Closing Date, the Company
shall afford, and will cause its Affiliates to afford, to the Buyer, its
counsel, accountants and other authorized representatives, during normal
business hours, reasonable access to the books, records and other data of
the Company and the Business with respect to periods ending on or prior to
the Closing Date to the extent that such access may be reasonably required
by the Buyer to facilitate (i) the investigation, litigation and final
disposition of any claims which may have been or may be made against the
Buyer in connection with the Business or (ii) for any other reasonable
business purpose.
(b) Until the third anniversary of the Closing Date, Buyer shall
afford, and will cause its Affiliates to afford, to the Company, its
counsel, accountants and other authorized representatives, during normal
business hours, reasonable access to the books, records and other data of
the Company and the Business and of Buyer relating to the Company and the
Business with respect to periods ending on or prior to the Closing Date to
the extent that such access may be reasonably required by the Company to
facilitate (i) the investigation, litigation and final disposition of any
claims which may have been or may be made against the Company in
connection with the Business or (ii) for any other reasonable business
purpose.
8.3 MAIL. The Company authorizes and empowers Buyer on and after the
Closing Date to receive and open all mail received by Buyer relating to the
Business or the Assets and to deal with the contents of such communications in
any proper manner. The Company shall promptly deliver to Buyer any mail or other
communication received by it after the Closing Date pertaining to the Business
or the Assets. Buyer shall use its reasonable best efforts to promptly deliver
to the Company any mail or other communication received by it after the Closing
Date pertaining to the assets described in Section 1.2 hereof, and any cash,
checks or other instruments of payment in respect of such assets.
8.4 SHAREHOLDER AGREEMENTS. At the Closing, Buyer and each of the holders
of outstanding shares of the Company (each, a "Shareholder") shall execute a
Shareholder's Agreement (each, a "Shareholder Agreement") in substantially the
form of EXHIBIT F hereto.
8.5 COMPANY'S COVENANT NOT TO COMPETE. In order to allow Buyer to realize
the full benefit of its bargain in connection with the purchase of the Assets,
Company will not, at any
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time for a period of three years following the Closing Date, directly or
indirectly, acting alone or as a member of a partnership or as a holder of in
excess of 5% of any security of any class, or as a consultant to or
representative of, any corporation or other business entity,
(a) engage in any business in competition with the Business as
conducted by the Company at the date hereof in those geographic areas in
which such Business is conducted or has been conducted within one year
prior to the Closing Date; or
(b) request any present or future customer or supplier of the
Company or of the Business as conducted by Buyer to curtail or cancel its
business with Buyer; or
(c) unless otherwise required by law, disclose to any person, firm
or corporation any details of organization or business affairs of the
Company or the Business, any names of past or present customers of the
Company or any other non-public information concerning the Business, the
Company or the Assets; or
(d) induce or attempt to influence any employee of Buyer assigned to
the conduct of the Business to terminate his or her employment.
The Company acknowledges that in the event the scope of the covenants set forth
in this Section 8.5 is deemed to be too broad in any proceeding, the court may
reduce such scope to that which it deems reasonable under the circumstances. The
parties hereto agree and acknowledge that Buyer would not have any adequate
remedy at law for the breach or threatened breach by the Company or any of their
Affiliates of the covenants and agreements set forth in this Section 8.5 and,
accordingly, the Company further agrees that Buyer may, in addition to the other
remedies which may be available to it hereunder, file suit in equity to enjoin
either the Company or any of its Affiliates from such breach or threatened
breach and consent to the issuance of injunctive relief hereunder. The Company
understands and agrees that the act of Buyer in entering into this Agreement,
and Buyer's covenants and payments hereunder, shall and do constitute sufficient
consideration for the Company to agree not to compete against Buyer as set out
in this Section 8.5.
8.6 REGISTRATION STATEMENT. The Buyer and DI will prepare and file with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as promptly as practicable following the Closing, and will use all
reasonable efforts to have declared effective by the Commission, a registration
statement on Form S-3 (or such other Form as may be required) for the purpose of
registering the DI Stock issued to the Company hereunder, and keep such
registration statement effective for a period ending on the first to occur of
the disposition of all shares of DI Stock subject thereto and two years
following the Closing Date. DI further agrees, as soon as practicable following
the Closing Date, to prepare and file a listing application covering the DI
Stock issued by the Company hereunder with the American Stock Exchange and use
all reasonable efforts to have such DI Stock so listed.
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9. INDEMNIFICATION.
9.1 INDEMNIFICATION BY THE COMPANY. Subject to the provisions of this
Section 9, the Company shall protect, indemnify and hold harmless Buyer, its
affiliates and each of its and their respective officers, directors and agents
and each person who controls Buyer in respect of any losses, claims, damages,
liabilities, deficiencies, delinquencies, defaults, assessments, fees, penalties
or related costs or expenses, including court costs and attorneys', and
accountants' fees and disbursements, and any federal, state or local income or
franchise taxes payable in respect of the receipt of cash or money in discharge
of the foregoing (collectively referred to herein as "Damages") to which Buyer
may become subject if such Damages arise out of or are based upon (i) the
Retained Liabilities, and (ii) the breach of any of the representations,
warranties, covenants, or agreements made by the Company in this Agreement,
including the Exhibits and Schedules hereto, or in any certificate or instrument
delivered by or on behalf of the Company pursuant to this Agreement; PROVIDED,
HOWEVER, that Buyer shall not be entitled to assert rights of indemnification
under this Section 9.1(ii) unless and until the aggregate of all such Damages
exceeds $150,000 (it being understood that such Damages shall accumulate until
such time or times as the aggregate of all such Damages exceeds $150,000,
whereupon Buyer shall be entitled to indemnification hereunder for any such
Damages in excess of, but excluding, $150,000); and PROVIDED, FURTHER, that
Buyer shall not be entitled to assert any rights of indemnification with respect
to any breach of the representations and warranties in Section 3.1(k) or any
other representations and warranties with respect to the Company's Real Estate,
for which Buyer's sole remedy shall be the exclusion of such Real Estate from
the Assets as set forth in Sections 4.3 and 4.12 and the reduction in Purchase
Price set forth in Section 4.3.
9.2 INDEMNIFICATION BY BUYER. Subject to the provisions of this Section 9,
Buyer shall protect, indemnify and hold harmless the Company, its affiliates and
each of its and their respective officers, directors and agents, and each person
who controls the Company, in respect of any Damages to which the Company may
become subject if such Damages arise out of or are based upon the (i) the
Assumed Liabilities, and (ii) the breach of any of the representations,
warranties, covenants or agreements made by Buyer in this Agreement, including
the Exhibits and Schedules hereto, or in any certificate or instrument delivered
by or on behalf of the Buyer pursuant to this Agreement.
9.3 MONETARY LIMIT ON INDEMNIFICATION LIABILITY. Notwithstanding any other
provisions to the contrary in this Agreement, the liabilities under Section 9.1
of the Company shall be limited to the sum of $10,000,000 cash or, if the
Company so elects shares of DI Stock with a total value of $10,000,000 at the
last reported sale price of the DI Stock on the American Stock Exchange averaged
for the ten trading days prior to the date of payment by the Company.
9.4 INDEMNIFICATION PROCEDURES. The obligations and liabilities of each
indemnifying party hereunder with respect to claims resulting from the assertion
of liability by the other party or third parties shall be subject to the
following terms and conditions:
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(a) If any person shall notify an indemnified party (the
"Indemnified Party") with respect to any matter which may give rise to a
claim for indemnification (a "Claim") against Buyer on the one hand or the
Company on the other (the "Indemnifying Party") under this Section 9, then
the Indemnified Party shall promptly notify each Indemnifying Party
thereof in writing; provided, however, that no delay on the part of the
Indemnified Party in notifying any Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then solely
to the extent) the Indemnifying Party thereby is prejudiced.
(b) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Claim with counsel of its choice reasonably
satisfactory to the Indemnified Party so long as (i) the Indemnifying
Party notifies the Indemnified Party in writing within 15 days after the
Indemnified Party has given notice of the Claim that the Indemnifying
Party will indemnify the Indemnified Party from and against the entirety
(subject to any limitations contained in Section 9) of any Damages the
Indemnified Party may suffer resulting from, arising out of, relating to,
in the nature of or caused by the Claim, (ii) the Indemnifying Party
provides the Indemnified Party with evidence reasonably acceptable to the
Indemnified Party that the Indemnifying Party will have the financial
resources to defend against the Claim and fulfill its indemnification
obligations hereunder, (iii) the Claim involves only money damages and
does not seek an injunction or other equitable relief, (iv) settlement of,
or an adverse judgment with respect to, the Claim is not, in the good
faith judgment of the Indemnifying Party, likely to establish a
precedential custom or practice materially adverse to the continuing
business interests of the Indemnified Party, and (v) the Indemnifying
Party conducts the defense of the Claim actively and diligently and in
good faith.
(c) So long as the Indemnifying Party is conducting the defense of
the Claim in accordance with Section 9.4(b) above, (i) the Indemnified
Party may retain separate cocounsel at its sole cost and expense and
participate in the defense of the Claim, (ii) the Indemnified Party will
not consent to the entry of any judgment or enter into any settlement with
respect to the Claim without the prior written consent of the Indemnifying
Party (not to be withheld unreasonably), and (iii) the Indemnifying Party
will not consent to the entry of any judgment or enter into any settlement
with respect to the Claim without the prior written consent of the
Indemnified Party (not to be withheld unreasonably).
(d) In the event any of the conditions in Section 9.4(b) above is or
becomes unsatisfied, however, (i) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or obtain
any consent from, any Indemnifying Party in connection therewith), (ii)
the Indemnifying Party will remain responsible for any damages the
Indemnified Party may suffer resulting from, arising out of, relating to,
in the nature of, or caused by the Claim to the fullest extent provided in
this Section 9.
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10. MISCELLANEOUS.
10.1 PAYMENT OF CERTAIN FEES AND EXPENSES. Each of the parties hereto
shall pay the fees and expenses incurred by it in connection with the
negotiation, preparation, execution and performance of this Agreement, including
brokers' fees, attorneys' fees and accountants' fees.
10.2 NOTICES. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given if delivered personally or mailed, first
class mail, postage prepaid, return receipt requested, as follows:
(a) If to the Company:
Flournoy Drilling Company
P. O. Box 491
Alice, Texas 78333
Attn: Mr. Lucien Flournoy
with a copy to:
White, Huseman & Pletcher
600 Leopard Street, Suite 2100
Corpus Christi, Texas 78403-2707
Attn: Mr. Anthony E. Pletcher
with a copy to:
Matthews & Branscomb
802 North Carancahua, Suite 1900
Corpus Christi, Texas 78470-0700
Attn: Mr. Kenton E. McDonald
(b) If to Buyer:
DI Industries, Inc.
625 Paragon Center One
450 Gears Road
Houston, Texas 77067
Attn: Mr. Thomas P. Richards
with a copy to:
Gardere Wynne Sewell & Riggs, L.L.P.
333 Clay Avenue, Suite 800
Houston, Texas 77002
Attn: Mr. Frank Putman
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or to such other address as either party shall have specified by notice in
writing to the other party. All such notices, requests, demands and
communications shall be deemed to have been received on the earlier of the date
of delivery or on the fifth business day after the mailing thereof.
10.3 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules hereto) constitutes the entire agreement between the parties hereto
and supersedes all prior agreements and understandings, oral and written,
between the parties hereto with respect to the subject matter hereof.
10.4 BINDING EFFECT; BENEFIT. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective permitted heirs,
personal representatives, successors and assigns. Nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective heirs, personal representatives, successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement.
10.5 ASSIGNABILITY. This Agreement shall not be assignable by the Company
without the prior written consent of Buyer or by Buyer without the prior written
consent of the Company; provided, however, that Buyer shall be entitled to
assign this Agreement to an Affiliate without the consent of Company.
10.6 AMENDMENT; WAIVER. This Agreement may be amended, supplemented or
otherwise modified only by a written instrument executed by the parties hereto.
No waiver by any party of any of the provisions hereof shall be effective unless
explicitly set forth in writing and executed by the party so waiving. Except as
provided in the preceding sentence, no action taken pursuant to this Agreement,
including any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any
representations, warranties, covenants, or agreements contained herein, and in
any documents delivered or to be delivered pursuant to this Agreement and in
connection with the Closing hereunder. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach.
10.7 LIMITATION ON INTEREST. Regardless of any provision contained herein
or any other document executed in connection with this Agreement, the parties
hereto shall not be obliged to pay, and the parties hereto shall never be
entitled to charge, reserve, receive, collect or apply, as interest (it being
understood that interest shall be calculated as the aggregate of all charges
that are contracted for, charged, reserved, received, collected, applied or paid
which constitute interest under Applicable Law) payable hereunder any amount in
excess of the maximum nonusurious contract rate of interest allowed from time to
time by Applicable Law, and in the event any of the parties hereto ever charges,
reserves, receives, collects or applies, as interest, any such excess, at the
option of the payor of such interest, such amount shall be deemed a partial
prepayment of the amount payable hereunder or promptly refunded to the payor of
such interest.
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10.8 SECTION HEADINGS; INDEX. The section headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
10.9 SEVERABILITY. If any provision of this Agreement shall be declared by
any court of competent jurisdiction to be illegal, void or unenforceable, all
other provisions of this Agreement shall not be affected and shall remain in
full force and effect.
10.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
10.11 APPLICABLE LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Texas.
10.12 NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the
benefit of the parties hereto and nothing contained herein should be deemed to
confer upon any third parties any remedy, claim, liability reimbursement, claim
of action or other right in excess of those existing without reference to this
Agreement.
11. DEFINITIONS.
11.1 DEFINED TERMS. As used in this Agreement, each of the following terms
has the meaning given it below:
"Affiliate" means, with respect to any person, any other person
that, directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, such person.
"Applicable Law" means any statute, law, rule or regulation or any
judgment, order, writ, injunction or decree of any Governmental Entity to
which a specified person or property is subject.
"Code" means the Internal Revenue Code of 1986, as amended.
"Encumbrances" means liens, charges, pledges, options, mortgages,
deeds of trust, security interests, claims, restrictions (whether on
voting, sale, transfer, disposition or otherwise), easements and other
encumbrances of every type and description, whether imposed by law,
agreement, understanding or otherwise.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"GAAP" means generally accepted accounting principles as in effect
on the date of this Agreement.
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"Governmental Entity" means any court or tribunal in any
jurisdiction (domestic or foreign) or any public, governmental or
regulatory body, agency, department, commission, board, bureau or other
authority or instrumentality (domestic or foreign).
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Intellectual Property" means patents, trademarks, service marks,
trade names, copyrights, trade secrets, know-how, inventions, and similar
rights, and all registrations, applications, licenses and rights with
respect to any of the foregoing.
"IRS" means the Internal Revenue Service.
"knowledge of the Company", "best knowledge of the Company", or
words of similar import shall mean the actual, current knowledge of Lucien
Flournoy, Woods Mathews, and Red West, it being understood that they have
undertaken no special investigation into the substance of matters being
represented.
"Permits" means licenses, permits, franchises, consents, approvals
and other authorizations of or from Governmental Entities.
"Permitted Encumbrances" means the (i) Encumbrances specifically set
forth on SCHEDULE 3.1(d) hereto; (ii) Encumbrances for taxes, assessments
and governmental charges not yet due and payable; (iii) statutory liens
arising in the ordinary course of business relating to obligations (x) as
to which there is no default on the part of the Company and (y) which are
Retained Liabilities, excluding any mortgage, security agreement or
similar document and (iv) with respect to real property: (a) minor
imperfections of title, if any, none of which is substantial in amount,
materially detract from the value or impairs the value of the property
subject thereto, or impairs the operations of the Company or the Business,
and (b) utility and similar easements and rights-of-way which,
individually, and in the aggregate, do not materially interfere the use of
such real property in the Business of the Company; provided, however, that
at the Closing "Permitted Encumbrances" shall not include any Encumbrances
for taxes, assessments or governmental charges filed of record against the
Assets, or statutory liens filed of record against the Assets.
"reasonable best efforts" means a party's best efforts in accordance
with reasonable commercial practice and without the incurrence of
unreasonable expense or the initiation of legal action or similar
extraordinary efforts.
"Taxes" means any income taxes or similar assessments or any sales,
excise, occupation, use, ad valorem, property, production, severance,
transportation, employment, payroll, franchise or other tax imposed by any
United States federal, state or local (or any foreign or provincial)
taxing authority, including any interest, penalties or additions
attributable thereto.
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"Tax Return" means any return or report, including any related or
supporting information, with respect to Taxes.
11.2 CERTAIN ADDITIONAL DEFINED TERMS. In addition to such terms as are
defined in Section 10.1, the following terms are used in this Agreement as
defined in the Sections of this Agreement referenced opposite such terms:
DEFINED TERMS REFERENCE
------------- ---------
Assets Section 1.1
Acquisition Proposal Section 4.7
Agreement Preamble
Assumed Liabilities Section 1.5(c)
Benefit Plan Section 3.1(p)
Business Recital 1
Buyer Preamble
Claim Section 9.4
Closing Section 2.1
Closing Date Section 2.1
Commission Section 8.6
Company Preamble
Consent Required Contract Section 8.1
Contracts Section 1.1(h)
Damages Section 9.1
DI Section 2.2
DI Commission Filings Section 3.2(e)
DI Stock Section 2.2
Drill String Section 1.1(e)
Environmental Laws Section 3.1(k)
Escrow Agent Section 7.3
Escrow Agreement Section 7.3
Escrow Fund Section 7.3
Financial Statements Section 3.1(c)
Hazardous Material Section 3.1(k)
Indemnified Party Section 9.4
Indemnifying Party Section 9.4
Inventory Section 1.1(d)
Non-assigned Contract Section 8.1
Purchase Price Section 2.2
Real Estate Section 1.1(a)
Retained Liabilities Section 1.5(a)
Rigs Section 1.1(b)
Shareholder Section 8.4
Shareholder Agreement Section 8.4
Title Company Section 1.3(a)
Vehicles Section 1.1(c)
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11.3 REFERENCES. All references in this Agreement to Sections, paragraphs
and other subdivisions refer to the Sections, paragraphs and other subdivisions
of this Agreement unless expressly provided otherwise. The words "this
Agreement", "herein", "hereof", "hereby", "hereunder" and words of similar
import refer to this Agreement as a whole and not to any particular subdivision
unless expressly so limited. Whenever the words "include", "includes" and
"including" are used in this Agreement, such words shall be deemed to be
followed by the words "without limitation". Each reference herein to a Schedule,
Exhibit or Annex refers to the item identified separately in writing by the
parties hereto as the described Schedule, Exhibit or Annex to this Agreement.
All Schedules, Exhibits and Annexes are hereby incorporated in and made a part
of this Agreement as if set forth in full herein.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the date first above written.
DRILLERS, INC.
By: /s/ T. P. RICHARDS
T. P. Richards, President
FLOURNOY DRILLING COMPANY
By: /s/ LUCIEN FLOURNOY
Lucien Flournoy, President
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